The $1.5 Billion Illusion: How Builder.ai’s AI Facade Led to a Shocking Collapse

In a dramatic turn of events, Builder.ai, once a shining star in the AI startup ecosystem with a valuation of $1.5 billion and backing from tech giants like Microsoft and Qatar’s sovereign wealth fund, has filed for bankruptcy. The company's rapid rise and even swifter fall have sent shockwaves through the tech industry, raising questions about the veracity of AI claims and the due diligence of investors.

🚀 The Rise of Builder.ai

Founded in 2016 by Sachin Dev Duggal, Builder.ai (formerly Engineer.ai) positioned itself as a revolutionary no-code platform, promising to simplify app development through artificial intelligence. Its AI assistant, "Natasha," was marketed as a tool that could autonomously design and code applications, attracting over $450 million in funding from prominent investors.

🤖 The AI Facade

Despite its bold claims, investigations revealed that Builder.ai's "AI-powered" platform was largely a facade. The company relied on approximately 700 engineers based in India to manually write code, while presenting their work as AI-generated. This deception was first hinted at in a 2019 Wall Street Journal report and later confirmed by multiple sources, including a Business Standard article detailing the company's reliance on human labor.

💸 Financial Misconduct and "Round-Tripping"

Builder.ai's troubles extended beyond misrepresented AI capabilities. The company engaged in "round-tripping" with Indian firm VerSe Innovation, exchanging invoices for similar amounts without actual services rendered to inflate revenue figures. This practice, spanning from 2021 to 2024, was uncovered by Bloomberg and led to increased scrutiny from regulators . VerSe Innovation has denied these allegations, asserting that all transactions were legitimate .

📉 The Financial Collapse

In early 2025, Builder.ai's financial woes became insurmountable. An internal audit revealed that the company's reported revenue of $220 million for 2024 was grossly overstated, with actual income closer to $50 million. This discrepancy led lender Viola Credit to seize $37 million from Builder.ai's accounts, leaving the company with only $5 million in restricted funds. Unable to meet its obligations, Builder.ai filed for bankruptcy, resulting in the layoff of nearly 1,000 employees across multiple countries.

🧑‍💼 Leadership Turmoil

The company's leadership saw significant upheaval during its decline. Founder Sachin Dev Duggal stepped down as CEO in February 2025, replaced by Manpreet Ratia. Despite efforts to stabilize the company, Ratia faced insurmountable challenges, including the revelation of inflated revenues and the subsequent financial fallout. Notably, Builder.ai operated without a Chief Financial Officer from July 2023 until its collapse, raising concerns about its financial oversight.

⚖️ Legal and Regulatory Repercussions

The fallout from Builder.ai's collapse has prompted investigations by U.S. federal authorities, who have subpoenaed the company's financial records and customer data. The scandal has also reignited discussions about "AI washing," where companies exaggerate their AI capabilities to attract investment. Industry experts are calling for stricter regulations to prevent similar deceptions in the future.

🔍 Lessons Learned

Builder.ai's downfall serves as a cautionary tale for the tech industry, highlighting the dangers of overhyping AI capabilities and the importance of transparency and due diligence. As the AI sector continues to grow, stakeholders must remain vigilant to ensure that innovation is grounded in reality, not just marketing hype.

For a more in-depth analysis, you can watch the following video:

https://youtu.be/Sd6F2pfKJmk